Knowledge Problem

Michael Giberson

In Arizona, solar power installation company SolarCity has been told it must be regulated as a public utility if it employs a financing arrangement it has developed, a “solar services agreement,” to sell its services to non-profit entities.

Usually SolarCity builds solar power systems and provides financing and ongoing monitoring services, but doesn’t own the installed systems or sell the power generated by the systems.  While solar power is expensive, these installations can be profitable to their owners because the cost is heavily subsidized via federal tax credits and other subsidies.  Because non-profit entities, like public schools, don’t have federal tax obligations, tax-based subsidies are valueless and the normal project designs won’t work.  SolarCity structured their solar services agreement so the non-profit can indirectly capture the benefits of the federal tax credit, but the approach requires SolarCity to become owner of the solar power installation and provide power to the non-profit.  The question under Arizona law is whether SolarCity is “furnishing … electricity for light, fuel, or power” as described but Article 15 Section 2 of the state’s constitution.  If so, it is deemed a “public service corporation” and must be regulated as a utility.

A post at the Rose Law Group Blog provides links to a few of the regulatory documents spawned by the discussion.  Groups as diverse as the Goldwater Institute, the Phoenix Suns, and the Vote Solar Initiative have weighed in in favor of exempting SolarCity from regulation as public utility.  Many of these comments are not much more substantive than assertions that the parties like solar power and don’t want it burdened by regulations.

For the Goldwater Institute, however, it is more likely the case that they don’t like regulation and want to minimize the burden of the regulation on commerce.  The Goldwater Institute op-ed (written with a representative of the Sierra Club) does get to the substantive issue: companies negotiating solar services agreements are not monopoly utilities, they do not have captive customers, and hence there is no public benefit from treating solar power installers as if they were monopoly utilities.

I’m persuaded by this argument.  I just hope whatever decision the Arizona Corporation Commission (ACC) comes to is also extended to wind power companies, biomass-power companies, cogeneration companies, fuel cell based power producers, and, in fact, to all distributed generation resources of all types.  To this end, the ACC ought to avoid tailoring its response to fit the very specific circumstances of solar power installations providing power to non-profit entities, and instead focus on identifying how and why competitive suppliers of distributed energy resources ought to be able to furnish power to Arizona consumers without becoming regulated as public utilities.

(MAYBE, since this proceeding was founded by SunCity’s request for clarification that its solar services agreement would not result in it being regulated by the state, the ACC can’t do more that conclude that SunCity ought not be regulated by the state.  In that case, the ACC may be able to, on its own initiative, issue a policy statement that generalizes the principles by which competitive suppliers of distributive energy resources can pursue similar contracting arrangements.)